Health Economics and the Long-Term Care Industry Essay Sample

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Introduction of TOPIC


Despite the fact that long term care receives less policy attention from the federal government as compared to health care, long term care plays a vital role to many Americans of all ages irrespective of their financial statues. It affects the spending in nearly all the public programs. The problems that the long term care currently abounds ranges from the catastrophic burdens amongst the population which have been impaired and unmet needs to controversies between the federal government and the state about who meet the responsibilities of  long term care programs. As the country’s population ages the pressure to improve the care program will grow, raising key questions concerning the balance between the non-institutional and institutional care, integration of long term and acute care, assurance of high quality care and the mechanism for financing so as to provide an affordable protection.


The structure of health care delivery in the county has undergone a great transformation from a system that was based on acute care to one that is geared towards the needs of people suffering from chronic illness.  People are in need of a long term care whenever they need supervision or they cannot perform some basic activities due to chronic health illness or because of their old age.  Not only does Long term care involves home care but, it is also a continuum of services starting with home care health care and care giver’s respite care. Since time in memorial families have provided long term care for the people who need them, however social and demographic changes may inhibit the amount and quality of care that families’ members are providing.  With the growing awareness of the non elderly disabled needs, high rate of HIV infection and the ageing of the American population more long term care and service options are required.

Nursing home care

 Nursing home refers to a type of care residents i.e. a place of residence for individuals who need constant care from the nurses and have some significant problems in carrying out activities of daily life.  People who reside in nursing homes include younger adults and elderly with mental or physical disabilities. In United States of America, the law requires that all the nursing homes to have nurses 24hrs a day and in each shift there must be a registered nurse. Services provided in nursing homes include occupational, physical and speech therapy, nursing aids and assistants, recreational facilities, board and room. Certified nurses are the ones who mostly provide care in nursing facilities.

According to the figures provided by the Department of health in 2004, there were four hundred registered nursing assistants per one hundred resident’s beds.  The nursing facilities that are licensed to participate in Medicaid and Medicare programs are usually required to meet the federal requirement in relation to the quality and staffing of care. Medicare is usually used to cover nursing homes for twenty to one hundred days for beneficiaries who are in need of a skilled rehabilitation service or nursing care after hospitalization. Medicare program does not cover nursing care in the event that only custodial service is required. To be covered by Medicare, the physician must prove that the beneficiaries in the skilled nursing facility are in need of a daily special/skilled nursing care that relates to hospitalization.   Medicaid covers nursing home care for individuals who are in need of a custodial care, fulfils a government’s means Assets test, and tested income. The cost of residing in nursing home cost thousands dollars or more. (Houser 2007)

Home care

Home care is a supportive or health care that is provided in the patient home by a professional or by friends and family members. The term homecare is normally used to differentiate custodial care or non medical care, which is a care that is offered by people who are not professional nurses or doctors. Scholars have recently argued that there is need to distinguish between home health care and home care. The main objective of home care is to make it possible for patients to stay at home rather than use long term or residential care. Services offered include life assistance and health care services. Professional health services include psychological assessment, medical assessment, pain management, disease education and occupational therapy (Patricia 2001 pp 58 – 61)

Long term care financing

Despite the fact that most people who are in need of long term care depends heavily on unpaid help form friends and families, spending on long term in the country has become substantial. The main sources of funding for long term care are: out of pocket financing and Medicaid. That accounted for 26 % and 40 % respectively of the national home care and the nursing home expenditures in 2008.

Figure 1 shows the total nursing home care expenditure. (Retrieved from Cohen M 1998 emerging trends in delivery & finance of long term care private & public opportunity & challenges)

In Two thirds of long term spending in nursing home care that was reported in 2004 44% were funded by the Medicaid while thirty one percent were funded through pocket spending.

            Medicare finances long term care through home health benefit and tangential limited skill nursing facilities. Although there have been growth in recent times in spending, much of the home care and SNF which were paid for by Medicare is still short term rehabilitative care that relates to out patients or hospital stays procedure. It covers SNF care for up to one hundred days after a hospital stay of at least three days.  For individuals who are homebound and are in need of a part time physical or other therapy and skilled nursing services, Medicare pays for personal care services that are provided by home health aides (Geyer et al 1989 pp 796 -799)

            Medicaid pays for long term care for people whose incomes are low and individuals who might become poor as a result of spending on long term care or on medical. In 2005 Medicaid funded forty four percent of nursing homes spending. It supports funding in partial or in full. Unlike Medicare, Medicaid allows states to cover personal care at their homes irrespective of whether skilled  nursing care is required or not.  (Geyer et al 1989 p 798)

The federal rules allows the disabled and the elderly to Medicaid benefits in case their assets and income are low enough to make them eligible to the federal supplemental security income (SSI). However many states allows there residents to become members under medically needy provisions if they have spend their assets and income on care. In nursing home care states without medically needy coverage are required to cover nursing homes with incomes three times level of SSI. People who are institutionalized are required to contribute all their income, except a very small personal need allowance. In the event that one of the spouses is in nursing care/home care, while the other one is at home the community living spouse is given the permission to have higher assets and income level, the level varies from state to state. (Cohen 1998)

States are flexible, when it comes to designing long term programs and controlling their accessibility. First, the state has to determine their level of eligibility, secondly, given that they must cover home health services but they are also given the option of providing some personal care using programs that reduces some requirements by federal government. For example state can establish the limit on the number of people enrolled in care programs (irrespective of their eli

gibility) and their target programs. Thirdly, the state can regulate directly the supply of beds for

nursing homes. In addition the federal government has given the states the power to control the rates that are paid to the nursing homes fro the beneficiaries of the Medicaid, which can influence accessibility (Cohen 1998)

The outlook for long term care in United States of America

Long term care insurance

            Long term care insurance refers to an insurance product that is sold by some insurance companies to help in meeting the cost of long term care beyond a period that cannot be determined. It generally covers cares that are not covered by the Medicaid, Medicare or the health insurance (Gibson 2003)

            It covers assisted living, respite care, nursing home, hospice care, Alzheimer, and home care facilities.  In the event that one buys home care coverage, long term insurance will always pay for home from the first day that it is needed. Long term care insurance will pay for a live in or visiting companion, care giver, housekeeper, private duty nurse and therapist, for a duration of seven days a week and twenty four hours a day (up to the maximum benefits given by the policy). Other benefits that it offers include: (Claus D, et al 1999 pp 20-23)

  • Some people may not be comfortable relying on their family members or children to support them; they have a feeling that long term care insurance might offer them great support in covering out of pocket expenses. With the absence of long term insurance the cost of providing these services may quickly depletes these people savings.
  • The premiums paid on long term insurance is eligible for income tax deductions, the amount deducted is dictated by the age of the covered individual, the benefits that are paid from the long term care insurance are excluded from whatever income the individual is earning.
  • The type of business is the one which determine the Business deduction premiums, generally companies employees premium are 100% deductible if they are excluded in taxable income of the employees.

There are two types of long term policies that are offered in the market, these are: non tax qualified and tax qualified. Non Tax qualified includes a medical necessity trigger –this implies that a doctor in conjunction with the insurance company or a patient doctor can state that an individual needs care. Non tax qualified policies unlike tax qualified includes walking as an activity and states that in the event that one fails to perform one of these activities he is eligible  to benefits. While Tax qualified policies requires that an individual must be in need of care for a minimum period of ninety days. He must not be able to perform at least two daily living activities without any assistance. (Claus D, et al 1999 p 24)

Many policies have a waiting duration similar to deductible. This is the duration that someone pays for care before he gets his benefits. Waiting period ranges between twenty days and one hundred and twenty days. The higher the duration of deductible the lower the premium

Increased costs/expenditures of long term care

The cost of providing long term care has increase in the past years this is because of the increase in the aging population and baby boomers. With the current economic doldrums the government also get it had to find long term care.

Market competition in long term care

Historically, the market in long term care industry has not had to worry a bout the competition. Long term care industry have existed when they demand for them was more than enough. In early 1990s, the long term care system was being financed by the government, Medicaid and Medicare were the dominant hence there was no competition (Pratt 2004 p 218).

This has changed in recent years managed care has become one of the bigger buyers in the market. Single buyers are fewer in the long term care; however they might be present in some regions. The move towards market competition by buyers has forced providers to ware of the competition in the market. Long term care is yet to reach the competition status, however it has already taken that direction (Pratt 2004 p 219).

Entry into the market is currently easier than it use to be. Appreciating the fact that many MCOs are currently providers, the opportunity for pure providers is now better because of the following factors: First, with the increase in the elderly population the demand for long term care has gone up, secondly, with the highly dynamic nature of long term care and the increase in demand has opened new door for new type of care delivery. (Gruneir et al 2001 pp 10 -12)

Competition has also become tough because it occurs among the same providers such as home care agency versus home care agency, at it was in the past, but currently it occurs in addition to that it now occurs between different providers. Consumers now have many multiple options to choose from. For providers to successfully compete in this industry they must start by competing for the payers attention who are looking for high quality care (Pratt 2004 p 219).

A very competitive long term care market is the one that is subject to minimal government control if any, to control the number of service providers and the prices that they charge. Although this is yet t o happen in United States, however the federal government has changed some restrained that it was imposing in long term care market. The government has reduced some of the requirement that providers have to meet before they become eligible to offers services, these has increased the competition in the market. The federal government has shifted its goals from limiting the number of providers to increasing the number of people whom they can cover. The role of the federal government is more of interactive (Pratt 2004 p 221).

Effect and outlook of the aging baby boomers and people living longer on Long term health care and possible solutions

            In years to come the numbers of baby boomers and the number of the old people in the society will increase, this is likely to swell the number of people with  disabilities and the need for more long term care services. The increase in the number of the aging baby boomers and people living longer will exacerbate the current problems in financing and provision of long term care service. Approximately 1 in every 5 adults reports their inability to receive health care; this is likely to increase with time (Walker 2002)

Possible solutions for the problems brought about by aging baby boomers and people living longer include: the federal government should increase their funding to the long term care programs, the government should encourage more insurance companies to venture in the provision of long term care insurance, the government should improve the quality of services that are being offered long term care providers, the government should expand the numbers of long term care providers this will increase their capacity of holding the increasing number of the elderly people in the community and lastly the government should encourage its citizens to save or to buy long term care insurance. (Walker 2002)


The US long term care programs and policies have some shortcomings and this is likely to increase as the county population ages and the number of people who are in dare need of home care increases.  The county continue to face  arrays of complex  problems relating to quality assurance, balancing between the home care and the nursing home care, affordable accessibility to the programs and integration of the the acute and the long term programs.

Quality assurancedespite the reforms that the federal government has brought about in long term care; there is still need to do more. According to the report that was presented to the congress about a quarter of the seventeen thousand nursing homes countrywide have some serious deficiencies which needs government attention. Some of the factors that have been blamed for the inefficiencies of long term care programs are inadequate support from the federal and the state government and lack of attention from the two branches of government. The policies that have been put in place also affect the quality of services that are offered at the long term care programs. The writer of this paper is of the opinion that extending the long term care reach and the enhancing their tools effectiveness will remain a challenge to the government.

Integrating acute and long term carepeople who should be cared for in the long term program are frustrated  by the challenges of  coordination in the different types of  programs.  The writer of this paper is of the opinion that only the successful integration of acute and long term care can reduce the burden that the program is facing hence improving the efficiency and the quality of the long term care. There is more rhetoric as compared to the reality in service integration. The promotion of service integration particularly through relying on capitation rather than relying on fee for service indicates a continued quest for containment in cost as much as it does in pursuit of provision of a high quality long term care. The writer is of the opinion that Capitation particularly though combining Medicaid and Medicare dollars will give the country a lot of financials advantages, the state will have the opportunity of controlling dollars that currently being managed by the federal government.

Improving the nursing home/home care balance –despite the expansion of Medicare, Medicaid still continues dominating long term care. States have struggled over the years to reduce their spending in vain. The writer of this paper is of the opinion that the continued emphasis on nursing over home care shows the government reluctance in expanding support for home care. The government needs to expand the overall investment in long term care.


Claus D, et al (1999) Long Term Care Grand Kent Consortium on Successful Aging press pp 20 -24

Cohen M 1998 emerging trends in delivery & finance of long term care private & public opportunity & challenges. Retrieved from on March 18, 2009

EU Commission director for social affair & employment 2002 Long term care, Office for Official Publications of the European Communities press

Gruneir A, Lapane K. Miller C & Mor V 2001 Long term care market competition & nursing homes dementia special care unit

Geyer R & Nyman J 1989 Promoting quality life in nursing homes can regulation succeed health politics policy & laws journal   pp 796 – 814

Gibson M 2003 “Beyond 50 03Report to the Nation on Independent Living and Disability” AARP,

Houser A 2007 Long term care – research report, AARP Public Policy institute retrieved from On March 18, 2009

Patricia R 2001 Quality evaluation of home nursing care perceptions of nurses, physicians & patients nursing care quality journal Elsevier publishers pp 58 -67

Pratt J 2004 Long term care – managing across the continuum Jones & Bartlett Publishers pp 180 – 230

Kane R & Ladd R 1998 the heart of long term care Oxford University Publishers pp 15 – 17

Nursing Homes despite Increased Oversight, Challenges Remain in Ensuring High-Resident Safety & Quality Care and GAO-06-117 December 28th 2005

Walker M 2002 Long term care aging baby boom will increase demand and burden on state & federal budgets PDF GAO – 02-544T

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